Carl Horowitz

They’re called voluntary employee beneficiary associations – VEBAs for short. The name might sound obscure. But this workplace arrangement will play a major role in determining whether the U.S. auto industry can sustain itself over the long run.

A VEBA is a tax-exempt trust fund covered under Section 501(c)(9) of the IRS code. It’s actually been around since the 1920s. Currently, there are more than 12,000 such entities, about a fifth of them in private industry. The ones negotiated in 2007 by the Big Three car manufacturers and the United Auto Workers (UAW) are attracting extra attention. That’s because on January 1, 2010, General Motors, Ford and Chrysler are scheduled to transfer control of their respective retiree health care funds to UAW-managed VEBA plans.

What brought about this dramatic move? From the automakers’ standpoint, it was nothing less than the need to stay in business. Their combined U.S. market unit sales share declined from 70 percent to 53 percent during 1998-2008. Last year, the companies experienced especially heavy losses in sales, stock prices and cash reserves. Total unit sales of GM, Ford and Chrysler cars and light trucks were only 7.17 million, down from 9 million in 2007. It was cold comfort that Toyota, Honda, Nissan and Hyundai also sold fewer vehicles, though their declines were not as steep.

Twice late last fall the CEOs of GM, Ford and Chrysler came to Washington, asking Congress for what amounted to a bailout. Each time they were denied. But the Bush administration responded favorably, pledging a combined $17.4 billion in emergency loans to GM and Chrysler (Ford said “no thanks” – at least for now), to be drawn from the $700 billion Troubled Asset Relief Program and on the condition that the companies become financial viable by March 31. This funding was on top of the $25 billion authorization for low-interest direct loans to automakers and suppliers enacted a year earlier as part of the new Energy Independence and Security Act.

Carl Horowitz

Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Gold Partner organization dedicated to promoting ethics in American public life.
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